Stanford University
Department of Economics
Economics 101: The Economics of Climate Change
Spring 1999
Prof. Charles D. Kolstad (Visiting Professor from University of California, Santa Barbara)
Office: 239 Landau Economics Building (Phone 3-7359; email ckolstad@leland)
Office Hours: Tuesday, 10-12, Wed 5-6 or by appt
Class Meets: MW 1:15-3:05 (no class May 31); Economics 140
TA: Dina Older-Aguilar (Phone 5-8983; office, 210 Landau Building; email dina@leland).
TA Office Hrs: MTh10-12.
This is a class in economics. But we will learn economics in the context of a very real environmental policy problem: climate change. The goals of the course are to learn about climate change as a policy problem, to learn some of the fundamental economics necessary to analyze and evaluate a problem like climate change and to sharpen your writing skills, particularly in terms of reporting results of analysis (as opposed to persuasive writing). Thus there will be weekly short writing assignments -- short in terms of length, not content. One of the difficulties you will face is concisely reporting your findings. There is no midterm.
Climate change (often termed global warming) is an interesting economic problem. It is clearly a case of an externality -- the emissions of greenhouse gases degrade possibly the purest of public goods, the global climate. The problem permeates all aspects of the economy -- any user of fossil fuels is a contributor to the problem. The problem involves a very long time frame involving multiple generations. The problem is further complicated by the many sovereign jurisdictions that must agree on action. We will use the problem to explore the issues of modeling economic growth, understanding intertemporal decision-making, representing technical change and innovation, measuring the monetary damage from environmental deterioration, understanding insurance markets and the role of uncertainty, examining game theoretic issues of international environmental agreements and finally, understanding the theory of regulation of environmental problems in a domestic context. Thus the problem gives us a good platform from which to explore most issues of environmental economics.
There will be weekly assignments (primarily writing) given on Wednesdays and generally due the following Wednesday (5 pm). You can use two automatic excused tardies for handing in these assignments but even in this case, the assignment must be completed by 5pm Friday (following the Wednesday due date). Unexcused late assignments involve a grade penalty. Each Wednesday, several students will be selected to make short 5 minute presentations on their paper. And just because you have presented before does not mean you will not be called upon again. So be prepared. Check the assignment webpage for assignment topics.
The final exam in the class will consist of a short paper and class presentation 5 minutes in length. The topic will be assigned 24 hours in advance of the final, which is on Monday, June 7, 8:30-11:30am. Check the assignment webpage Sunday morning June 6 for the final exam question. The final exam period will be dedicated to each student making their 5 minute presentation, handing in their short paper, and critiquing other students. Your grade will be based on class participation (20%), weekly papers (35%), occasional presentations (15%), final paper (15%), final presentation (15%). Your worst writing assignment will be dropped.
There will be a text and a set of readings required for the course. The text (Nordhaus: Managing the Global Commons) is available from the Stanford Bookstore and is required. Many of the readings are available on-line from a Stanford domain. Most of the other readings will be assembled into a reader [indicated as READER]. Others will be handed out in class [HANDOUT]. If you missed the distribution, Dina has extra copies in a box outside her office. Some of the readings that are chapters in books will be on reserve in Meyer Library, for short-term loan only [MEYER]. Remember that others will want to read the same books. So be considerate of your fellow classmates and also plan your reading ahead of time. Please read the assigned papers prior to the Monday of the week we are discussing them. You may also find some useful data in the climate change section linked to my personal webpage.
Part of the course involves developing your own economic model of the climate and economy to use for policy analysis. Nordhaus' model can be found in the back of his book. The GAMS website contains a useful introduction to the system. More information can be found in the manual by Brooke, Kendrick and Meeraus (entitled GAMS: A User's Guide, Release 2.25), on reserve in Meyer Library, and also downloadable. A shorter tutorial can also be downloaded. To access GAMS at Stanford, students must telnet to one of the following machines: adelbert, elaine, epic, saga, tree, or cardinal. To start GAMS just type in "gams" at the prompt followed by the name of the input file (usually with a .gms extension). Help can be obtained by typing gams -h.
COURSE OUTLINE
Stuff marked with a * are useful but optional. The rest should be read before the week starts.
Week 1: Everything you have always wanted to know about climate change (1/2 week)
Schlesinger, Michael, "Greenhouse Policy," Nat'l Geographic Research and Exploration, 9(2):159-72 (1993).
Nordhaus, Ch 3
Week 2: The Policy Environment
Schelling, Thomas, "Some Economics of Global Warming," American Economic Review, 82:1-14 (1992).
Barrett, Scott, "The Political Economy of the Kyoto Protocol," Oxford Review of Economic Policy, 14(4);20-39 (1998). [HANDOUT]
Week 3: Macro climate economy models
Nordhaus, Ch 1 & 2
Solow, Robert, Growth Theory: An Exposition (Oxford Univ Press, New York, 1970), Ch 1,2 (skim) & 5.
*Mankiw, N. Gregory, "The Growth of Nations," Brookings Papers on Economic Activity, #1, pp 275-310 (1995).
*Ramsey, Frank, "A Mathematical Model of Saving," The Economic Journal, 38:543-59 (1928).
*Nordhaus WD and ZL Yang, "A regional dynamic general-equilibrium model of alternative climate-change strategies," American Economic Review, 86:741-65 (1996).
*Weyant, J et al, "Integrated Assessment of Climate Change: An Overview and Comparison of Approaches and Results," in J Bruce et al, Climate Change 1995: Economic and Social Dimensions of Climate Change (Cambridge University Press, 1996)
Week 4: Discounting
Schelling, Thomas, "Intergenerational Discounting," Energy Policy, 23(4/5):395-401 (1995). [HANDOUT]
Lind, R.C., "Intergenerational Equity, Discounting, and the Role of Cost-Benefit Analysis in Evaluating Global Climate Policy," Energy Policy, 23(4/5):379-89 (1995). [HANDOUT]
Nordhaus, pp. 122-35
*Lind, RC, "A Primer on the Major Issues Relating to the Discount Rate for Evaluating National Energy Options," in R.C. Lind et al (Eds), Discounting for Time and Risk in Energy Policy (Resources for the Future, Washington, 1982). [MEYER]
*Arrow, K.J. et al, "Intertemporal Equity, Discounting, and Economic Efficiency," in J Bruce et al, Climate Change 1995: Economic and Social Dimensions of Climate Change (Cambridge University Press, 1996)
Week 5: Technical Change
Ausubel, J.H., "Technical Progress and Climatic Change," Energy Policy, 23:411-16 (1995). [HANDOUT]
Grossman, G.M. and E. Helpman, "Endogenous Innovation in the Theory of Growth," Journal of Economic Perspectives, 8(1):23-44 (1994). [HANDOUT]
Nordhaus, W, "Modelling Induced Innovation in Climate-Change Policy," working paper. [READER]
Berndt, E and D. Wood, "The Specification and Measurement of Technical Change in US Manufacturing," pp 199-221 in J.R. Moroney (Ed), Advances in the Economics of Energy and Resources, v.10 (JAI Press, Greenwich, CT, 1982). [MEYER]
Romer, P., "Increasing Returns and Long-Run Growth," J. Political Economy, 94:1002-37 (1986). [particularly through top of p 1017]
Week 6: Measuring Damage from Climate Change
Nordhaus, Ch 4
Kolstad, Environmental Economics, Chapters 16-18. [READER]
Mendelsohn, R, W.D. Nordhaus and D. Shaw, "The Impact of Global Warming on Agriculture: A Ricardian Analysis," American Economic Review, 84:753-71 (1994). [HANDOUT]
*Nordhaus, W.D., "New Estimates of the Economic Impacts of Climate Change," working paper, Yale University, December 28, 1998. [separate link for tables]
Week 7: Uncertainty, Learning and Insurance
Kolstad, Environmental Economics, Chapter 12. [READER]
Kelly, D and C Kolstad, "Bayesian Learning, Growth and the Environment," J. Economic Dynamics and Control, 23:491-518 (1999). [HANDOUT]
Nordhaus, pp 101-11, Ch 7, 8
Week 8: Noncooperative International Agreements
Cooper, Richard N, "Toward a Real Global Warming Treaty," Foreign Affairs, 77(2):66-79 (1998). [HANDOUT]
Barrett, Scott, "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, 46:878-94 (1994). [HANDOUT]
Nordhaus, WD, "Climate Allowances Protocol (CAP): Comparison of Alternative Global Tradable Emissions Regimes," Working paper, Yale University Department of Economics (June 17, 1997). [READER]
Week 9: Domestic Implementation
Kolstad, Environmental Economics, Chapter 8. [READER]
Council of Economic Advisors, "The Kyoto Protocol and the President's Policies to Address Climate Change," (July 1998) [just look at Executive Summary]
Poterba, James, "Tax Policy to Combat Global Warming: On Designing a Carbon Tax," in Dornbusch and Poterba (Eds), Global Warming: Economic Policy Responses (MIT Press, Cambridge, 1991). [MEYER]
Week 10: Policy Conclusions (1/2 week)
Hahn, RW and RN Stavins, "Trading in Greenhouse Permits: A Critical Examination of Design and Implementation Issues," in H Lee (Ed), Shaping National Responses to Climate Change (Island Press, 1995). [MEYER]
Fisher, BS et al, "An Economic Assessment of Policy Instruments for Combatting Climate Change," in J Bruce et al, Climate Change 1995: Economic and Social Dimensions of Climate Change (Cambridge University Press, 1996) [MEYER]
[Reading list version 5/19/99]